The mobile phone in our pocket is a genie fetching almost everything instantly within our grasp. One such item is digital loans which constituted almost 2.5% of all retail loans in FY24 – a big jump from the level of 1.8% from FY22. A recent report by Redseer Strategy Consultants says it could soar to 5% by FY28.
Digital loans are completely processed and disbursed through online platforms or mobile apps obviating the need for any paperwork or face-to-face interactions. The speed and convenience factors are triggering a runaway growth in digital loans particularly among Gen Z and millennials.
However, there are a few crucial pitfalls that one must be aware of.
Concern over lending style
One of the primary concerns is that digital lending apps often focus on individuals who are in a hurry to access funds and/or might have limited access to traditional credit services of a bank. Some of them also don’t have basic financial awareness or literacy. This often ends up creating what is called “predatory” lending practices.
The haste in which a person often fall for any source of quick funds can result in them accepting very high interest rates and/or hidden charges. In a short time, these factors can lead to a debt trap.
Data security concern
All digital lending processes require that loan applicants share crucial personal and financial data. This can even lead to misuse if the data become unsecure, wittingly or unwittingly, at the end of the creditor. It can even lead to unauthorised access into one’s bank accounts and theft of money.
Concerns about lack of transparency
Often terms are used that are not transparent or easily comprehensible by the common applicant. Some apps have also been accused of keeping crucial information in the fine print that often escapes the applicant’s attention. All these can spring nasty surprise on the borrower when the hour of repayment arrives.
Fake app trap
Beware of fake apps. These can imitate bonafide lending platforms, which can have outright dangerous consequences. Experts suggest authenticity of these should be verified before applying for any loan.
One should visit their website and scrutinise it. One thumb rule is to check whether the URL of the website begins with https. It denotes security as the data is encrypted.
Protect your credit score
Remember, indiscriminate borrowing and failing to repay will dent your credit score. And once the credit score is injured, it would be really difficult to secure credit when you need it for critical purposes like buying a flat or a car or even taking one for urgent medical reasons.
Though the government and Reserve Bank of India have taken up cudgels against digital loan apps, several risks are associated with these quick loans. One should be cautious while falling to lure of it. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
